References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Pono Capital Corp. References to our "management" or our
"management team" refer to our officers and directors, and references to the
"Sponsor" refer to Mehana Equity LLC. The following discussion and analysis of
the Company's financial condition and results of operations should be read in
conjunction with the condensed consolidated financial statements and the notes
thereto contained elsewhere in this Quarterly Report. Certain information
contained in the discussion and analysis set forth below includes
forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" that are not
historical facts and involve risks and uncertainties that could cause actual
results to differ materially from those expected and projected. All statements,
other than statements of historical fact included in this Quarterly Report
including, without limitation, statements in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the
Company's financial position, business strategy and the plans and objectives of
management for future operations, are forward-looking statements. Words such as
"expect," "believe," "anticipate," "intend," "estimate," "seek" and variations
and similar words and expressions are intended to identify such forward-looking
statements. Such forward-looking statements relate to future events or future
performance, but reflect management's current beliefs, based on information
currently available. A number of factors could cause actual events, performance
or results to differ materially from the events, performance and results
discussed in the forward-looking statements. For information identifying
important factors that could cause actual results to differ materially from
those anticipated in the forward-looking statements, please refer to the Risk
Factors section of the Company's annual report on Form 10-K filed with the U.S.
Securities and Exchange Commission (the "SEC"). The Company's securities filings
can be accessed on the EDGAR section of the SEC's website at www.sec.gov. Except
as expressly required by applicable securities law, the Company disclaims any
intention or obligation to update or revise any forward-looking statements
whether as a result of new information, future events or otherwise.
Overview
We are a blank check company incorporated in Delaware on February 12, 2021. We
were formed for the purpose of effecting a merger, capital stock exchange, asset
acquisition, stock purchase, reorganization or similar business combination with
one or more businesses (the "Business Combination"). We are an emerging growth
company and, as such, the Company is subject to all of the risks associated with
emerging growth companies. We intend to effectuate our Business Combination
using cash from the proceeds of the Initial Public Offering and the sale of the
Private Warrants, our capital stock, debt or a combination of cash, stock and
debt.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to raise capital or to
complete our initial Business Combination will be successful.
On March 17, 2022, we entered into an Agreement and Plan of Merger (the "Old
Merger Agreement"), by and among Pono, Pono Merger Sub, Inc., a Delaware
corporation and wholly-owned subsidiary of Pono ("Merger Sub"), Benuvia, Inc., a
Delaware corporation ("Benuvia"), Mehana Equity, LLC, in its capacity as
Purchaser Representative, and Shannon Soqui, in his capacity as Seller
Representative.
Pursuant to the Old Merger Agreement, at the closing of the transactions
contemplated by the Old Merger Agreement, Merger Sub was to merge with and into
Benuvia, with Benuvia continuing as the surviving corporation.
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The Business Combination Agreement and related agreements are further described
in our Current Report on Form 8-K filed with the SEC on March 18, 2022.
Termination of Merger Agreement
On August 8, 2022, the Company and Benuvia mutually terminated the Merger
Agreement pursuant to Section 8.1(a) of the Merger Agreement, effective
immediately. Neither party was required to pay the other a termination fee as a
result of the mutual decision to terminate the Merger Agreement.
New Proposed Business Combination
On September 7, 2022, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement"), by and among Pono, Pono Merger Sub, Inc., a Delaware
corporation and wholly-owned subsidiary of Pono ("Merger Sub"), AERWINS
Technologies Inc., a Delaware corporation ("AERWINS"), Mehana Equity, LLC, in
its capacity as Purchaser Representative, and Shuhei Komatsu, in his capacity as
Seller Representative.
Pursuant to the Merger Agreement, at the closing of the transactions
contemplated by the Merger Agreement (the "Closing"), Merger Sub will merge with
and into AERWINS, with AERWINS continuing as the surviving corporation (the
"Surviving Corporation").
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As consideration for the Merger, the holders of AERWINS securities collectively
shall be entitled to receive from the Company, in the aggregate, a number of the
Company's securities with an aggregate value equal to (the "Merger
Consideration") (a) Six Hundred Million U.S. Dollars ($600,000,000), minus (b)
the amount by which the aggregate amount of any outstanding indebtedness (minus
cash held by AERWINS) of AERWINS at Closing (the "Closing Net Indebtedness"),
minus (c) the amount by which AERWINS' Net Working Capital is less than $3
million, plus (d) the amount by which AERWINS' Net Working Capital exceeds $3
million, minus (e) specified transaction expenses of AERWNS associated with the
Merger, with each AERWINS stockholder receiving, for each share of AERWINS
common stock held, a number of shares of the Company common stock equal to (i)
the Per Share Consideration, divided by (ii) $10.00. Each outstanding option or
warrant to purchase AERWINS common stock shall be converted into the right to
receive an option or warrant to purchase a number of shares of the Company
common stock equal to (x) the Per Share Consideration divided by (y) $10.00.
The Merger Consideration otherwise payable to AERWINS stockholders is subject to
the withholding of a number of shares of the Company common stock equal to three
percent (3.0%) of the Merger Consideration to be placed in escrow for
post-closing adjustments (if any) to the Merger Consideration.
The Merger Consideration is subject to adjustment after the Closing based on
confirmed amounts of the Closing Net Indebtedness, Net Working Capital and
transaction expenses as of the Closing Date. If the adjustment is a negative
adjustment in favor of the Company, the escrow agent shall distribute to the
Company a number of shares of the Company common stock with a value equal to the
absolute value of the adjustment amount. If the adjustment is a positive
adjustment in favor of AERWINS, the Company will issue to the AERWINS
stockholders an additional number of shares of the Company common stock with a
value equal to the adjustment amount.
The Business Combination Agreement and related agreements are further described
in the Company's Current Report on Form 8-K filed with the SEC on September 7,
2022.
Results of Operations
We have neither engaged in any operations nor generated any operating revenues
to date. Our only activities for the nine months ended September 30, 2022 and
for the period from February 12, 2021 (inception) through September 30, 2021
were organizational activities, those necessary to prepare for the Initial
Public Offering ("Initial Public Offering") and identifying a target company for
a business combination. The Company will not generate any operating revenues
until after the completion of its initial Business Combination, at the earliest.
The Company generates non-operating income in the form of interest income on
cash and cash equivalents from the proceeds derived from the Initial Public
Offering. We incur expenses as a result of being a public company (for legal,
financial reporting, accounting and auditing compliance), as well as for due
diligence expenses.
For the three months ended September 30, 2022, we recorded a net loss of
$522,132, which resulted from formation and operating costs of $616,773,
franchise tax expense of $50,000, a loss due to a change in fair value of
warrant liability of $270,488, income tax expense of $109,621 and a loss on fair
value of Sponsor Working Capital Loan of $5,200, offset in part by interest and
dividend income on investments held in the Trust Account in the amount of
$529,950.
For the three months ended September 30, 2021, we had a net loss of $1,299,503,
which consisted of a change in Fair Value of warrant liability $680,914,
formation and operating costs of $113,640 and offering costs allocated to
warrants of $505,696, partially offset by interest income on marketable
securities held in the Trust Account of $747.
For the nine months ended September 30, 2022, we recorded net income of
$2,488,938, which resulted from a gain on fair value of warrant liability of
$3,431,576, and interest and dividend income on investments held in the Trust
Account in the amount of $699,327 , partially offset by formation and operating
costs of $1,375,230, franchise tax expense of $150,000, income tax expense of
$112,535 and a loss on fair value of the Sponsor Working Capital Loan of $4,200.
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For the period from February 12, 2021 (inception) through September 30, 2021, we
had a net loss of $1,299,727, which consisted of a loss due to a change in Fair
Value of warrant liability $680,914, formation and operating costs of $113,869
and offering costs allocated to warrants of $505,696 partially offset by bank
incentive of $5, and interest income on marketable securities held in the Trust
Account of $747.
Going Concern, Liquidity and Capital Resources
For the nine months ended September 30, 2022, net cash used in operating
activities was $689,412, which was due to the change in fair value of the
warrant liability of $3,431,576, change in fair value of the Sponsor Working
Capital Loan of $4,200 and interest and dividend income on the investments held
in the Trust Account of $699,327, partially offset by net income of $2,488,938
and changes in working capital of $948,353.
For the period from February 12, 2021 (inception) through September 30, 2021 net
cash used in operating activities was $399,762, which was due to the net loss of
$1,299,727, changes in working capital of $286,127 and interest earned on
marketable securities held in Trust Account of $747 partially offset by
formation costs paid by a stockholder in the form of a capital contribution of
$229, offering costs allocated to warrants of $505,696, and change in fair value
of warrant liability of $680,914.
Net cash used in investing activities for the nine months ended September 30,
2022, was $1,150,000 due to investment of cash into the Trust Account.
Net cash used in investing activities for the period from February 12, 2021
(inception) through September 30, 2021, was $116,725,000 due to investment of
cash into the Trust Account.
For the nine months ended September 30, 2022, net cash provided by financing
activities was $1,620,000 due to $470,000 received from the issuance of a
Sponsor Working Capital Loan and $1,150,000 in proceeds from the sale of private
placement units.
For the period from February 12, 2021 (inception) through September 30, 2021,
net cash provided by financing activities was $117,521,607 due to proceeds
received from the issuance of Class B common stock to the Sponsor of $25,000,
proceeds from sale of Units, net of underwriting discount paid of $113,050,000,
proceeds from sale of private placement units of $5,216,750, partially offset by
payment of offering costs of $770,143.
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. The Company had
$118,183 and $337,595 in cash and no cash equivalents as of September 30, 2022
and December 31, 2021, respectively.
At September 30, 2022 and December 31, 2021, substantially all of the assets
held in the Trust Account were held in mutual funds.
The accompanying condensed consolidated financial statements have been prepared
in conformity with GAAP, which contemplates continuation of the Company as a
going concern and the realization of assets and the satisfaction of liabilities
in the normal course of business. The Company has incurred and expect to
continue to incur significant costs in pursuit of the Company's financing and
acquisition plans. Management plans to address this uncertainty with the
successful closing of a Business Combination. The Company will have February 13,
2023 to consummate a Business Combination. If a Business Combination is not
consummated by February 13, 2023, less than one year after the date these
condensed consolidated financial statements are issued, there will be a
mandatory liquidation and subsequent dissolution of the Company. Management has
determined that the mandatory liquidation, should a Business Combination not
occur, and potential subsequent dissolution, as well as the Company's working
capital deficit, raise substantial doubt about the Company's ability to continue
as a going concern. No adjustments have been made to the carrying amounts of
assets or liabilities should the Company be required to liquidate after February
13, 2023. The Company intends to complete the proposed Business Combination
before the mandatory liquidation date. However, there can be no assurance that
the Company will be able to consummate any Business Combination by February 13,
2023. Based upon the above analysis, management determined that liquidity
concerns and the mandatory liquidation raise substantial doubt about the
Company's ability to continue as a going concern within less than one year after
the date the condensed consolidated financial statements are issued. The
condensed consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
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Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of September 30, 2022 and December 31, 2021.
We do not participate in transactions that create relationships with
unconsolidated entities or financial partnerships, often referred to as variable
interest entities, which would have been established for the purpose of
facilitating off-balance sheet arrangements. We have not entered into any
off-balance sheet financing arrangements, established any special purpose
entities, guaranteed any debt or commitments of other entities, or purchased any
non-financial assets.
Contractual Obligations
Promissory Note - Related Party
On March 22, 2021, the Company issued an unsecured promissory note to an
affiliate of the Sponsor (the "Promissory Note"), pursuant to which the Company
could borrow up to an aggregate of $300,000 to cover expenses related to the
IPO. The Promissory Note was non-interest bearing and was payable on the earlier
of (i) July 31, 2021 or (ii) the consummation of the IPO. On August 17, 2021,
the Company repaid the outstanding balance under the Promissory Note.
Sponsor Working Capital Loans
In order to finance transaction costs in connection with a Business Combination,
our Sponsor may provide us with a loan of up to $1,500,000 as may be required
("Sponsor Working Capital Loans"). Such Sponsor Working Capital Loans would
either be repaid upon the consummation of a Business Combination, without
interest, or, at the lender's discretion, up to $1,500,000 of such loans may be
converted upon consummation of a Business Combination into additional Placement
Units at a price of $10.00 per Unit. In the event that a Business Combination
does not close, we may use a portion of proceeds held outside the Trust Account
to repay the Sponsor Working Capital Loans, but no proceeds held in the Trust
Account would be used to repay the Sponsor Working Capital Loans. As of March
31, 2022 and December 31, 2021, there were no amounts outstanding under any
Sponsor Working Capital Loans. On April 1, 2022, we drew $110,000 from the
Sponsor Working Capital Loan with our Sponsor. On May 24, 2022, we drew down
another $65,000 on the same Sponsor Working Capital Loan. On July 16th 2022,
there was an additional draw for $35,000. On August 8, 2022 the Company drew
down another $85,000. On September 12, 2022 there was another draw for $175,000.
On October 27, 2022, the Company drew $215,000 from the Sponsor Working Capital
Loan with the Sponsor. As of September 30, 2022, there was $470,000 outstanding
under the Sponsor Working Capital Loan.
Underwriting Agreement
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities. The underwriter is entitled to a deferred
fee of three percent (3.00%) of the gross proceeds of the Offering upon closing
of the Business Combination, or $3,450,000. The deferred fee will be paid in
cash upon the closing of a Business Combination from the amounts held in the
Trust Account, subject to the terms of the underwriting agreement.
On August 13, 2021, the underwriter has given the Company an abatement of
$350,000. The total cash underwriting fee is $1,950,000 and the deferred
underwriting fee is $3,450,000.
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Critical Accounting Policies
The preparation of condensed consolidated financial statements and related
disclosures in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the condensed consolidated
financial statements, and income and expenses during the periods reported.
Actual results could materially differ from those estimates. We have identified
the following critical accounting policies:
Warrant Liabilities
We account for the Warrants in accordance with the guidance contained in
Accounting Standards Codification ("ASC") 815-40 - Derivatives and Hedging -
Contracts in Entity's Own Equity under which the Warrants do not meet the
criteria for equity treatment and must be recorded as liabilities. Accordingly,
we classify the Warrants as liabilities at their fair value and adjust the
Warrants to fair value at each reporting period. This liability is subject to
re-measurement at each balance sheet date until exercised, and any change in
fair value is recognized in our condensed consolidated statements of operations.
The Private Placement Warrants and the Public Warrants for periods where no
observable traded price was available are valued using a Monte Carlo simulation.
For periods subsequent to the detachment of the Public Warrants from the Units,
the Public Warrant quoted market price was used as the fair value as of each
relevant date.
Class A Common Stock Subject to Possible Redemption
We account for our common stock subject to possible conversion in accordance
with the guidance in ASC Topic 480 - Distinguishing Liabilities from Equity.
Shares of Class A Common Stock subject to mandatory redemption are classified as
a liability instrument and measured at fair value. Conditionally redeemable
common stock (including common stock that features redemption rights that are
either within the control of the holder or subject to redemption upon the
occurrence of uncertain events not solely within our control) are classified as
temporary equity. At all other times, common stock is classified as
stockholders' equity. Our common stock features certain redemption rights that
are considered to be outside of our control and subject to occurrence of
uncertain future events. Accordingly, shares of Class A Common Stock subject to
possible redemption are presented at redemption value as temporary equity,
outside of the stockholders' equity section of our condensed consolidated
balance sheets.
Net Income (Loss) per Common Share
Net income (loss) per common share is computed by dividing net income (loss) by
the weighted average number of shares of common stock outstanding for the
period. The Company applies the two-class method in calculating earnings per
share. Remeasurement associated with the redeemable shares of Class A common
stock is excluded from earnings per share as the redemption value approximates
fair value.
Recent Accounting Standards
In August 2020, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") 2020-06, Debt - Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in
Entity's Own Equity (Subtopic 815-40) ("ASU 2020-06") to simplify accounting for
certain financial instruments. ASU 2020-06 eliminates the current models that
require separation of beneficial conversion and cash conversion features from
convertible instruments and simplifies the derivative scope exception guidance
pertaining to equity classification of contracts in an entity's own equity. The
new standard also introduces additional disclosures for convertible debt and
freestanding instruments that are indexed to and settled in an entity's own
equity. ASU 2020-06 amends the diluted earnings per share guidance, including
the requirement to use the if-converted method for all convertible instruments.
ASU 2020-06 is effective for fiscal years beginning after December 15, 2023 and
should be applied on a full or modified retrospective basis, with early adoption
permitted for fiscal years beginning after December 15, 2020. The Company
adopted ASU 2020-06 effective January 1, 2022 using the modified retrospective
method of transition. The adoption of ASU 2020-06 did not have a material impact
on the financial statements as of January 1, 2022 or for the nine months ended
September 30, 2022.
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Our management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on the
accompanying condensed consolidated financial statements.
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